U.S. notes and bonds advanced as John Gormley, leader of
Ireland’s Green Party, said the country’s bond spreads would
widen if Ireland considered renegotiating with Anglo Irish Bank
Corp. bondholders.

“There’s a bank issue there that isn’t going away,” said
Thomas Tucci, head of U.S. government bond trading in New York
at Royal Bank of Canada, one of the 18 primary dealers that
trade directly with the Fed. “It coincides with the fact that
we bounced off some significant levels here.”

The 30-year bond yield dropped 5 basis points, or 0.05
percentage point, to 3.88 percent at 8:10 a.m. in New York,
according to BGCantor Market Data. The price of the 3.875
percent security maturing in August 2040 gained 25/32, or $7.81
per $1,000 face amount, to 99 27/32.

The long bond’s yield was headed for a fourth weekly gain
in the longest stretch of advances since May 2009 on evidence
the threat of deflation is waning.

The consumer price index increased 0.3 percent for a second
month in August, according to the median forecast of 77
economists in a Bloomberg News survey. The report from the Labor
Department is due at 8:30 a.m. in New York.

Longer-term U.S. debt dropped yesterday after the Labor
Department reported that producer prices climbed last month more
than economists forecast, rising 0.4 percent in August after
gaining 0.2 percent in the previous month. Inflation erodes the
value of fixed-income securities.